Devaluation is austerity done right • Hacker News Board

Re: Devaluation is austerity done right

#41

Post by nickik » Thu, Jun 14, 2012, 3:00 PM UTC

betterth wrote: post #36

Symmetry wrote: post #30

Iceland was one of the countries that was hurt the worst by the financial crisis, remember the joke "What's the capital of Iceland? About a buck fifty". But since then its done very well recovering. To quote a blog: Iceland did almost everything right. They stiffed the bank creditors to avoid aggravating the moral hazard problem, just like the textbooks recommend. In the eurozone the bank creditors are being bailed o…

Question I wonder is: Iceland is tiny. Like TINY tiny kind of tiny. Their National GDP is $12.57 billion USD. America spends about $20.2 billion a year on air condition in Afghanistan. The point being -- the world economy can (and did) withstand the default and destruction of the Icelandic finance system. Could it have survived the default and destruction of the American finance system? Or would our incredibly interl…

Acctually it is very, very unlickly that the American finance system would have blown. Everytime the US has bailed out banks unter the premis 'to big to fail' later analysis has shown that the impact would have been much smaller.

There is a book about that: "Too Big to Fail: The Hazards of Bank Bailouts"

http://www.amazon.com/Too-Big-Fail-Hazards-Bailouts/dp/08157...

or maybe better for most people a podcast with the auther:

http://www.econtalk.org/archives/2009/10/gary_stern_on_t.htm...

It was acctually the feds intervention (paying banks to hold reserves) not the fall of leeman that froze the holesale lending market.

Re: Devaluation is austerity done right

#42

Post by smutticus » Thu, Jun 14, 2012, 3:01 PM UTC

pessimizer wrote: post #39

digitalengineer wrote: post #11

Not correct, this is helping the debtors (like our government) while extremely hurting the savers, people on fixed income, people with a pension and low income. As most western-european countries import more than they export (especially energy and food, when their currency goes down, what they can afford to import goes down as well. What we're seeing and why the $ and € don't fluctuate much (even though Europe is in…

Don't forget the debtors that aren't the government, the vast majority of the population. The dollar has been absurdly overvalued for a long time, destroying our exports and causing us to import excessively, leading to trade deficits and more debt. Not that savers won't be hurt unfairly, but they will be hurt even more by the accumulation of capacity loss caused by the lost potential output of austerity philosophies.…

Please provide evidence for overvaluation of the USD.

Re: Devaluation is austerity done right

#43

Post by Symmetry » Thu, Jun 14, 2012, 3:01 PM UTC

betterth wrote: post #36

Symmetry wrote: post #30

Iceland was one of the countries that was hurt the worst by the financial crisis, remember the joke "What's the capital of Iceland? About a buck fifty". But since then its done very well recovering. To quote a blog: Iceland did almost everything right. They stiffed the bank creditors to avoid aggravating the moral hazard problem, just like the textbooks recommend. In the eurozone the bank creditors are being bailed o…

Question I wonder is: Iceland is tiny. Like TINY tiny kind of tiny. Their National GDP is $12.57 billion USD. America spends about $20.2 billion a year on air condition in Afghanistan. The point being -- the world economy can (and did) withstand the default and destruction of the Icelandic finance system. Could it have survived the default and destruction of the American finance system? Or would our incredibly interl…

Good question, but I think the important thing to reduce moral hazard is that the bank's investors or creditors take it on the nose, not that we allow the bank itself to collapse. Still, it is a more complicated question for the US than for Iceland.

Re: Devaluation is austerity done right

#44

Post by nickik » Thu, Jun 14, 2012, 3:13 PM UTC

Shivetya wrote: post #17

and for whom does he propose this solution? Devaluation will only help countries who have their own currency, countries which bought into the Euro gave up that option and are nearly wholly dependent on more fiscally responsible member countries to bail them out. Yet those countries are not obligated to do so. In the good old days of having your own currency you would just soak your own populace and foreign investors.…

I agree that most countrys dont acctually do Austerity but I think some of these countrys are to far for austerity to work, they have to default.

People say that is not possible because of the Euro but that is BS, even on the gold standard countrys defaulted.

The reason that greek can not just default is because of EU regulation not the Euro per se (or any common currecny).

The defaulting country would have to default, balance the buded and start again (update there democracy and constituion would be a plus). Real wages would have to go down, lifing standards would go down, government handouts would have to go down but it would set a sound platform for recovery. The EU could help with Aid for the people that got hit hardest.

They should have done that in 2008, like iceland they would be much better of now.

Re: Devaluation is austerity done right

#45

Post by pessimizer » Thu, Jun 14, 2012, 3:13 PM UTC

Shivetya wrote: post #17

and for whom does he propose this solution? Devaluation will only help countries who have their own currency, countries which bought into the Euro gave up that option and are nearly wholly dependent on more fiscally responsible member countries to bail them out. Yet those countries are not obligated to do so. In the good old days of having your own currency you would just soak your own populace and foreign investors.…

Not more "fiscally responsible countries", just richer ones. Unless you're arguing that it is fiscally responsible to loan massive amounts of money to other countries to buy your exports. If I loan money to Bob the unemployed guy to buy a car from me, and it turns out that he can't pay me back on time, do I get to call myself fiscally responsible?

On the Euro: Either closer fiscal union or end it. If the member state's debt can't be backed by a proper central bank, it's just a mechanism for shipping wealth from the periphery to the core.

Re: Devaluation is austerity done right

#46

Post by aptwebapps » Thu, Jun 14, 2012, 3:15 PM UTC

digitalengineer wrote: post #11

Not correct, this is helping the debtors (like our government) while extremely hurting the savers, people on fixed income, people with a pension and low income. As most western-european countries import more than they export (especially energy and food, when their currency goes down, what they can afford to import goes down as well. What we're seeing and why the $ and € don't fluctuate much (even though Europe is in…

I could be wrong but aren't most pensions linked to inflation? I guess they could lag a bit, though. I'm also not sure there are that many people, in the US at least, on an actual fixed income. As for people with low income, if unemployment is high, then there's a decent chance they're out of the job without devaluation (according to this point of view) so overall there may be more economic hardship without the devaluation.

Re: Devaluation is austerity done right

#47

Post by planetguy » Thu, Jun 14, 2012, 3:19 PM UTC

bornhuetter wrote: post #33

planetguy wrote: post #20

Earlier quoted context omitted.

"The kind of austerity that involves taking away allowances and tax credits for the poor and middle classes is idiotic" No, the kind of profiligacy that allows the existence of allowances and tax credits for the poor and middle classes is idiotic. The poor are a different argument, but there's no way the middle classes should be dependent upon government welfare. Let the middle classes earn their own money and pay a…

Whether the existence of the welfare state in the first place is good or not is an entirely different argument; one that I'm not going to get into. My point is that when governments say that the best short-mid term solution to the debt crisis is to cut benefits and raise taxes on pensioners they are either lying or crazy.

Well the easy solution to a debt crisis is always just to stop paying your debts and fall back on the fact that you have a lot of guns. But quite apart from the ethical concerns of unilaterally cancelling all your own debts, the long-term ramifications for the nation can be profound

Re: Devaluation is austerity done right

#48

Post by crusso » Thu, Jun 14, 2012, 3:20 PM UTC

bornhuetter wrote: post #28

crusso wrote: post #23

Earlier quoted context omitted.

Aren't the "speculators" a bit of a boogeyman? Nobody complains when the speculators provide economic benefit (which studies say they do). Besides the general market efficiencies that speculation has been shown to provide, sometimes the speculators drive prices down very sharply in anticipation of commodity devaluation. No one ever seems to complain about that.

You're being very unspecific about who these "speculators" are, and lumping a huge group of people and companies into one bucket. Saying that the financial sector provides no benefits to society is ill-judged, but saying that everyone should be absolved of wrong-doing just because the sector as a whole provides some benefit is equally ill-judged.

> You're being very unspecific about who these "speculators" are, and lumping a huge group of people and companies into one bucket.

Generalizing the evil "speculators" without calling out specific sub-groups or behaviors was exactly what the OP did and why I was pointing out the reason we tolerate and encourage speculation in the first place.

>but saying that everyone should be absolved of wrong-doing just because the sector as a whole provides some benefit is equally ill-judged.

I certainly didn't say that or even mean to imply it if that's how you read it.

Re: Devaluation is austerity done right

#49

Post by aptwebapps » Thu, Jun 14, 2012, 3:21 PM UTC

planetguy wrote: post #20

bornhuetter wrote: post #4

Earlier quoted context omitted.

Because like it or not, a lot of the money is simply gone. Sure we need better regulated financial markets and less corruption in politics and the media, but in the mean time something needs to be done to get economies back on track. Increasing taxes on "the rich" and companies are good to some extent, but they will only take you so far. The kind of austerity that involves taking away allowances and tax credits for t…

"The kind of austerity that involves taking away allowances and tax credits for the poor and middle classes is idiotic" No, the kind of profiligacy that allows the existence of allowances and tax credits for the poor and middle classes is idiotic. The poor are a different argument, but there's no way the middle classes should be dependent upon government welfare. Let the middle classes earn their own money and pay a…

I don't see how tax credits are always idiotic. Presumably in a given system there is an idea tax rate for a particular income level. If the actual system has the rate 10% to high but the tax credit puts that back where it 'should' be, is that idiotic?

In short, don't the final numbers matter more than whether we reach them with or without a tax credit?

Re: Devaluation is austerity done right

#50

Post by prodigal_erik » Thu, Jun 14, 2012, 3:25 PM UTC

roc wrote: post #35

bahadden wrote: post #5

Earlier quoted context omitted.

Devaluation is the easiest solution from a political point of view, but it is basically a transfer of value from those with savings/creditors to those in debt (including all of us with large credit card debts and mortgages). It punishes the careful savers and rewards the profligate, and sends a signal that living high on credit is good, while those that save and live within their means are idiots.

The problem with that story is that it completely ignores what has actually happened since Glass-Steagal was repealed and the bubble burst. This isn't a simple case of ants and grasshoppers. The current economic problem is a lack of aggregate demand. Too many people are cutting their spending to pay down their debts, which cuts economic activity, which puts more people out of work contributing to the lack of demand,…

> The current economic problem is a lack of aggregate demand.

This just half-gelled a different viewpoint for me. There's nothing inherently noble about saving, because the demand doesn't vanish—that money still represents a claim on some fraction of society's resources, only they plan to consume in the future rather than now. Well, we have to align both present and future supply and demand. We can't have everyone expecting to consume all their resources in the future, because then we're wasting our capacity to produce resources in the present.